Taxes for a piece of artwork that has zero market value

http://www.nytimes.com/2012/07/22/ar...e.html?_r=2&hp

This is an example of the federal government playing by different rules than that that it imposes on the private sector.

Sarbanes-Oxly (SOX), the knee-jerk reaction to Enron, makes companies record their assets as 'mark-to-market'. 'Mark-to-market' means you have to record the book value of an asset as what the market will pay for it. The asset (like bundled mortgages backed by real real estate with real value and generates real monthly cash flow has to be carried as zero value if no one is willing to buy it. This is why banks have had to write down a lot of their 'toxic assets' (remember what the TA in TARP stands for!).

The market for the artwork in question is undoubtedly zero. It can not be sold. So its book value, based on accounting principles defined in Sarbanes-Oxly (SOX) is zero. Yet the government wants their tax money on this asset that has zero market value.

Correct, book to tax difference accounting. Any one dealing with Fixed assets and investments from an accounting piece deals with this.

Originally Posted by plantmanky

Correct, book to tax difference accounting. Any one dealing with Fixed assets and investments from an accounting piece deals with this.

I am familiar with book to actual and book to market. Have not had to deal directly with 'book to tax'. No wonder we have so many accountants!

Is 'fair' that the government does not apply SOX principles to itself?

Originally Posted by Bluegrasscard

I am familiar with book to actual and book to market. Have not had to deal directly with 'book to tax'. No wonder we have so many accountants!

Is 'fair' that the government does not apply SOX principles to itself?

It goes in many directions. The first basic issue with Book to tax is depreciation methods. Companies can have an internal (Book) method that is different from tax methods. This creates many book to tax differences.

In this case, its more of an asset valuation issue.